Investing in the financial market either in cryptocurrency trading, forex trading, or even stocks is gaining numerous fans day by day especially in Nigeria. Most individuals desire to trade to earn money and the prospect of converting little amounts of money into a large fortune is very appealing. However, although trading may sound sweet, it is also a risky thing. Indeed, most traders also end up losing their cash due to the lack of ideas on how to deal with their risks. The most effective and prudent method of securing your money and gradually become a better trader is to study how to apply a couple of valuable tools take-profit and stop-loss. The two tools will enable you not to lose heavy and even before the market reverses so that you can make a profit. In this humble write-up I will define what stop-loss and take-profit are, how they do work, how pivotal they are and how to intelligently set them so to become a better trader.

First we should know what a stop-loss is. The stop-loss order is just a technique, you employ in the process to instruct your trading platform to exit your trade in the event that the price is working against you. It works by commanding your system by saying, should the market go sour and reach this point then close my trade and preserve my money. Assume that you are buying Bitcoin at 30,000 dollars because you think that it is going to go up.

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And what happens when it goes down? Otherwise, the stop-loss that you failed to set might be the reason why the price continues to decrease and your loss continues to increase. However, when you order a stop-loss of 28,000 then the system will automatically close your position after the price goes to 28,000. This way, you do not lose as much as $2,000 as you might have lost, say, $5,000 or $10,000. The stop-loss is just a fall back plan. It also ensures that you do not lose a lot in case things go haywire in the market.

And now take-profit. Stop-loss is the reverse of take-profit order. It assists you in securing your benefit as soon as the market direction goes your way. We will take the same case. You have bought Bitcoin at the price of 30,000 dollars. In case you wish to take profit at 35,000, you will be able to place a profit at this amount. In a situation when the price will reach 35 000, your trade will automatically close and you will keep your 5,000 dollar profit. This comes in very handy as most traders are greedy. They can glimpse profit and will not take a closing trade in the hope of getting better. At times, the price reduces back and they lose the already earned profit. However, take-profit will ensure you have profited at the time when the market has reversed. It is an intelligent approach to having joy in your achievements and not having worry.

Then why is stop-loss and take-profit such a big deal? The thing is that trading is emotional. Two enemies of any trader are fear and greed. You can decide to leave a trade after losing $1,000 but after experiencing this, you would still want to keep it going hoping it will come back. You can lose 10,000 or more instead of only 1000. Similarly, you might visualize the profit of 3 000 Naira but greed will refuse to allow you to exit the trade and at the end, it can end up as a loss. This is the reason why stop-loss and take-profit are your best friends. They enable you to act according to your plan and not according to the feelings. These are instruments that keep on working even when you are asleep or offline. The market is dynamic and there is always something that may happen in the market. These tools ensure that you are secure and make your trading account flourish over time.

So now we will dig in a little more into how to place a stop-loss in a smart manner. Knowing your risk tolerance is the first thing. It implies that you need to determine the maximum amount of money that you are ready to lose during one operation. Sometimes, smart traders put at stake between 1 to 3 percent of their trading resources with each trade. Take an example if you have 100,000 in your trading account, then you should not risk any more than 1,000 to 3,000 on a single trade. Trade too much and a single trade can ruin your whole account. It is due to this reason that risk management plays a vital role.

The second thing that you should do is to set your stop-loss using support and resistance levels. The level where the market tends to jump up is called support and a level where the market tends to jump down is called resistance.

The third one is to remember that you cannot place your stop-loss too closely or too far. In case it is too tight, minor movements in the market can touch it even when your trade is still on the right track. Otherwise, when it is too far, then your loss will be too big. Find a balance, as much as you can. You can also employ such tools as the ATR (Average True Range) indicator, which will help you to calculate smart stop-loss levels at distances based on the volatility of the market.

So, now we can discuss how to take-profit smart. Rule number one is to utilize what is referred to as a risk to reward ratio. It merely refers to a comparison of the amount one is risking with the level of profit he/she wants to make. A risk-to-reward ratio of 1:2 or 1:3 is good. This is to say that in the event that you risk 1,000, your target is to get 2,000 or 3, 000 profit. That is how, you can make some losses in trading but those that you make can pay your loss and leave you with additional profit. Most traders are losing money due to the fact that they risk 5 thousand just to have 2 thousand. It is not clever.

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The second cleaver way of setting take-profit is with employing technical analysis. It implies analyzing the graph and trying to find the points where the price typically halts or reverses the trend. Such levels are referred to as resistance levels (when purchasing) or support levels (when selling). Take-profit should be set slightly ahead of those levels, not on them as the price gets close. By doing this, there are higher chances of the market reaching your target and reversing.

Scaling out of trades is the third method of taking profit wisely. It entails capturing some of your profit when the market is going your way and leaving the other to run.

It also has the common errors that traders tend to make when using stop-loss and take-profit. The former is never to utilize them in the first place. Others simply get into this market and wish best. It is equivalent to riding in a car without brakes. The second error is to take your stop-loss out more when the trade is against you. It is risky. One should take a loss and wait for a better occasion instead of taking on a bigger one. The third error is to place your take-profit very far in the hope that your profit can be huge. It is not always a big move that the market delivers. Be down to earth and profit when the profit is reasonable.

Market type is also a matter of importance. When a market is trendy, the market is very much one-sided in its price. Then, you will be able to establish a broader stop-loss and take-profit. Your stop-loss and take-profit should be narrower though, in a ranging market (price is moving up and down inside a localized or minor area). If you are serious, always research the market before making your levels.

You are a Nigerian trader; therefore, you need to keep in mind that our currency (naira) is highly volatile. Thus, when you are in any dollar-denominated market whether it is forex or crypto, understand the value of your stop-loss position in naira. One can use an example of losing $10 which is not a very big amount, however it can become 15,000 naira or more depending on the exchange rate. Always do calculations in naira so that you will not incur surprises.

To sum up, stop-loss and take-profit are not just the tools but they are your partners in this sort of journey as a trader. They assist you in keeping safe, less emotionally burdened and consistent. Setting them right i.e. Rational method to set the levels entailing proper risk management, stationary support and resistance, plus relevant schemes as per the scenario of the market. It is advisable to make small intelligent gains on a long-term basis rather than going out to get big returns and going down the drain. Trading crypto, forex, or stocks in Nigeria, stop-loss, and take-profit is what can make you trade as a pro.

Therefore, when you are getting ready to make another trade, you must ask yourself, “Have you placed your stop-loss?” Has my take-profit been taken? Am I trading with a plan in mind?” When you are ready to say yes to all three, then you are well on your way to being a smarter successful trader.